Venezuela drops six zeros from its currency, Bolivar continues to lose ground against the dollar – Economy

The Central Bank of Venezuela carried out the announced conversion plan for the national fiat currency Bolivar on October 1st. According to previous statements, this change meant removing six zeros from the currency in order to make payments and currency settlement easier. However, just a few hours after this measure was applied, the bolivar lost more than 20% of its value against the US dollar.

Venezuela removes six zeros from its currency

Venezuela's central bank, which dictates the country's monetary policy, has made a switch to its fiat currency, the bolivar, to make it easier to pay and handle large amounts of money. This change meant that the current value of the currency was reduced by six zeros, so 1,000,000 bolivars is now just 1 bolivar.

The measure was announced in August, when the central bank announced it would change the name of the currency to “Digital Bolivar,” sparking speculation about a possible issuance of a central bank digital currency in the country. However, the bank did not provide any reports in this regard and instead announced the issuance of new bills to complement the transition plan.

Banks and financial institutions suspended their services to the public on September 30 to make the necessary changes to their platform to adjust the amounts of the new converted currency.

Paralyzing devaluation

But even with this measure, the so-called digital bolivar is still rapidly losing value. According to one of the most popular dollar pricing sites in Venezuela, Monitor Dolar Paralelo, the exchange rate went from 4,317,970.70 Bolivars per dollar 5,140,000 (or 5.14 in the converted currency) in just two days. This means that fiat currency lost 19% of its value on the sidelines of the transition plan.

Some analysts have reported that the government is likely to enter the foreign exchange market by injecting resources to keep the exchange rate low in the short term. Tomás Socías López, a Venezuelan analyst, explained According to local media, the government could inject up to $30 million a week in liquidity into the foreign exchange market, with the aim of keeping the rate artificially low.

However, this decision would be costly for Maduro's government, which would have to divert resources to other purposes in order to control the exchange rate. The country is now facing fuel shortages and citizens are having to endure long queues to fill their tanks due to a variety of factors, including the poor condition in which local refineries are.

For this reason, more and more Venezuelans are looking at cryptocurrencies as an alternative source of investment and savings. But the dollar is still the royal currency of the country, which is undergoing an unofficial dollarization process.

What do you think of the Fiat transition plan in Venezuela? Tell us in the comments section below.

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